Supreme Court Obama Care Decision Tough To Swallow

As a CPA and author on taxes, I have a beef with the Affordable Care Act (ACA) in connection with health insurance taxes. Whether you are a fan or an opponent of ACA, I respect your opinion fully. This discussion is strictly about the process of creating tax policy, and the ugly sausage-making aspect of it, as I am not an attorney or constitutional scholar.

It seems to be a stretch for Chief Justice John Roberts to re-label an unconstitutional health insurance mandate as a tax, after the legislative and executive branches of government insisted they were not passing a new tax on the American people. Had it been presented as a tax, it probably would not have been enacted. It seems like the judicial branch of government is doing the job of the legislature. Wouldn’t it have been better for the Supreme Court to punt the law back to Congress? Yes, that probably would have caused great disarray, but it seems more appropriate.

Chief Justice Roberts ruled that the ACA mandate to purchase health insurance under the Commerce Clause unconstitutional, a mini victory for opponents of ACA. In my view, calling it a tax is hard to swallow. I agree with the minority dissent from the conservative justices.

By an everyman standard, this tax is clearly the mirror image of a government mandate for commerce. Not following the government’s health insurance mandate triggers this tax. In a layman’s view, if the court ruled the mandate as unconstitutional, then recasting it as a constitutional tax seems unfair. If it walks and talks like a mandate, isn’t it really a mandate and not a tax?

Technically, Chief Justice Roberts may be correct on relabeling the mandate a tax. Our tax attorney points out, “If the tax is a mirror image of a commerce mandate, then even if Congress cannot make a commerce mandate it can pass a tax. There is nothing in the Constitution that prohibits passing a tax which also has commerce implications. That happens all the time.”

Chief Justice Roberts raised the popular argument that the government already assesses cigarette taxes as a financial disincentive to smoking, and he likened that to a tax incentive to purchase health insurance. In his opinion, Justice Roberts refers to tax penalties being a financial choice vs. mandates and other more severe government penalties, like jail time. In all due respect to our eminent Chief Justice, for many Americans digging into their pocket book for this health insurance penalty during a recession is pretty severe, too.

Supporters of the health insurance mandate compared it to Social Security and Medicare taxes. I disagree. Social Security and Medicare taxes apply on earned income for all taxpayers, not a select group of taxpayers. Taxpayers deemed to be good in the eyes of our government overseers are not given a pass on these entitlement-plan taxes: Social Security and Medicare taxes apply across the board. This health insurance mandate is more like an excise tax charged on vices.

President Obama is a constitutional attorney and scholar. I’m guessing he probably knew his mandate was safer cast as a tax. I wonder if he knowingly sold it to Congress and the American people with some deception in this context. Many Americans (including myself) don’t accept new tax hikes easily, especially when Congress and the president sell them with marketing deception, making back room deals, and not listening to the American people.

The excellent behavioral-economics book “Freakonomics” makes a wonderful point about the perverse nature of financial penalties. Charging financial penalties often has the opposite outcome of what was intended. Authors Steven Levitt and Stephen Dubner give the example of a childcare facility that didn’t want parents to be late picking up their children.

The facility charged a financial penalty for being late and guess what happened next? Many parents who previously rushed to pick up children due to social responsibility and peer pressure chose the easy financial way out, to pay the small penalty. They viewed the penalty offer as an acceptable freeing of social responsibility and peer pressure. The outcome was a dramatic increase in parents’ picking up their children late and the center quickly got rid of the penalty offer. The book gives several other good examples of this same behavioral economics effect.

The government must know behavioral economics, too, so I wonder if it is really in the business of wanting to raise more tax revenue for more government spending on health care. The government already makes a fortune on taxes on cigarettes, alcohol, lotteries, gaming and other so called vices.

If ACA survives future elections and politics, let’s see how it turns out. Will people pay the tax penalty and not purchase health insurance, or will they enter the health insurance marketplace as the government hopes? As a CPA firm, we will have to deal with this issue and the tax penalty when we plan and prepare tax returns for clients.

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I think the above example about unintended consequences missed a point. If the childcare center had charged more, to make the penalty profitable, it would have been a win-win situation for them and their customers. The customers would pay the higher amount if determined to be in their best interest, or not and retrieved their children accordingly. The business missed an opportunity for additional profit, the customers to deal with cost vs. social pressure.

Isn’t the health insurance tax on inactivity, akin to a tax on not eating broccoli? I wonder how many other taxes exist on non activity.

Excise taxes on vices like cigarettes are federal sales taxes on consumer activities to purchase vice items, not a tax assessed for not purchasing what the government overseers insist is a good activity. First, government taxes vices, and now they seek to tax not eating broccoli, or buying health insurance. Isn’t that stretching the powers of Congress to tax too far?

In media interviews today, President Obama and his team are still insisting it’s a penalty and not a tax – which could be politically damaging to Democrats, even after the Supreme Court ruled a mandate or penalty unconstitutional.

Stretching to mislabel revenue raisers – a tax wolf in sheep’s clothing – happened before in the Obama administration. President Obama called his TARP bank tax proposal a “financial-responsibility crisis fee.” Republicans blocked that tax hike. When government forces us to do things it’s often offensive and when they charge us money it’s a tax hike.

Republicans say they will seek to overturn this health insurance tax hike in a Congressional reconciliation process, where they only need a 51 vote majority in the Senate. House leadership says they will repeal ACA before the election.

Judge Roberts limited the commerce clause, but he clouded the waters on taxing powers and that’s a concern to me.

Summary. Roberts ruled the IRS assessment for not purchasing health insurance was unconstitutional as a mandate or penalty under the Commerce Clause, and he said it “may be a tax.” May?

Some pundits think his opinion punts the issue back to Congress and their reconciliation process. But, can’t the President veto a change from Congress? This seems to tee up this issue clearly for the Presidential election?

Isn’t the health insurance tax on inactivity, akin to a tax on not eating broccoli? I wonder how many other taxes exist on non activity.

Excise taxes on vices like cigarettes are federal sales taxes on consumer activities to purchase vice items, not a tax assessed for not purchasing what the government overseers insist is a good activity. First, government taxes vices, and now they seek to tax not eating broccoli, or buying health insurance. Isn’t that stretching the powers of Congress to tax too far?

In media interviews today, President Obama and his team are still insisting it’s a penalty and not a tax – which could be politically damaging to Democrats, even after the Supreme Court ruled a mandate or penalty unconstitutional.

Stretching to mislabel revenue raisers – a tax wolf in sheep’s clothing – happened before in the Obama administration. President Obama called his TARP bank tax proposal a “financial-responsibility crisis fee.” Republicans blocked that tax hike. When government forces us to do things it’s often offensive and when they charge us money it’s a tax hike.

Republicans say they will seek to overturn this health insurance tax hike in a Congressional reconciliation process, where they only need a 51 vote majority in the Senate. Taxes only require 51 votes, whereas Commerce Clauses require 60 votes. House leadership says they will repeal ACA before the election.

Judge Roberts limited the commerce clause, but he clouded the waters on taxing powers and that’s a concern to me.

Summary. Roberts ruled the IRS assessment for not purchasing health insurance was unconstitutional as a mandate or penalty under the Commerce Clause, and he said it “may be a tax.” May?

Some pundits think his opinion punts the issue back to Congress and their reconciliation process. But, can’t the President veto a change from Congress? This seems to tee up this issue clearly for the Presidential election?